3 Methods of Calculating Compound Interest you must know

Question1

MNas invested the sum of $18,500 at the rate of 27% compound interest per anuum for 10 years. Calculate the total amount this will become after the 10-year period.

Solution

Let's solve this question using three (3) different methods as follows:

Method 1 - Use of table

This method computes the interest at the end of every period and automatically adds back to get a new principal amount as shown in "column E". That new principal amount now becomes the principal upon which the new interest is computed using the same interest rate given 

Method 2 - Vertical presentation

This method recognizes the fact that the current period is year 0 and treats the current as such. Thereafter, interest is calculated at the end of every period (year) and then adds back to the initial (old) principal to get the new principal amount as shown 

Method 3 - Use of Compound Interest formula

Here, we adopted the use formula, which is always faster, especially when many years are involved. With this method (use of formula), we can calculate for a very high number of years. It is shorter and faster; hence, recommended.